Australian business conditions hit their lowest point in over two years in August, with the outlook for jobs deteriorating, according to a survey released on Tuesday by the National Australia Bank (NAB). While there were signs of easing inflationary pressures, the overall economic outlook remained mixed.
The NAB’s business conditions index dropped by 3 points to +3 in August, marking the weakest level since January 2022 and falling below the long-term average. The more volatile business confidence index declined by 5 points to -4, the lowest reading so far this year.
Within the business conditions index, employment saw a sharp decline, dropping from +7 to +1 after a temporary boost in July. The fall reflects weakening sales and profitability, which may be dampening demand for labor. NAB Chief Economist Alan Oster noted, “The period of very strong private sector labor demand, seen throughout the post-COVID recovery, may be coming to an end.”
Oster further pointed out that conditions are now “clearly below average” compared to historical survey data, signaling broader weakness in the private sector as the Australian economy slows.
The Reserve Bank of Australia (RBA) has held interest rates steady at 4.35% since November, maintaining that current rates are restrictive enough to guide inflation back within its target range of 2-3% while protecting job gains. Despite this, underlying inflation remains stubborn at 3.9% as of the last quarter, making an interest rate cut unlikely for the remainder of the year.
However, market analysts still see an 80% chance of a rate cut in December, driven in part by expectations that the U.S. Federal Reserve may ease policy this month, potentially prompting similar moves by other major central banks.
The NAB survey offered mixed signals on inflation. Growth in labor costs slowed to a quarterly rate of 1.7%, down from July’s 2.4%, which had been inflated by an increase in minimum wages. On the other hand, purchasing costs remained elevated at 1.6% for the quarter, up from 1.3% in July, while retail price growth ticked up to 1.2% from 1.0% in the previous month.
Despite some relief in labor cost pressures, persistent gains in other costs suggest inflationary challenges are far from over.
